The primary responsibility of assessors is to value all real and personal property in their municipality each year for tax assessment purposes. Every three years, these valuations must be reviewed by the Department of Revenue (DOR) and certified as meeting legal standards. Valuations in years between this triennial certification are referred to as interim year adjustments and must also meet legal standards, but are not certified by DOR.
Assessors are required by Massachusetts law to assess all real and personal property at its fair cash value as of January 1 each year. Fair cash value or fair market value, is the price a willing buyer and a willing seller would settle upon in an open market transaction, i.e., they expended a reasonable effort to determine a price and there are no special circumstances involved. To determine market value, assessors must evaluate a number of factors that impact the amount a willing buyer and seller would agree upon, including:
Sales – The time, volume and price of sales for the same type of property in the general area.
Location – The location of the property.
Supply and demand – The number of properties available for sale relative to the number of buyers seeking to buy them.
Assessors use mass appraisal procedures and techniques when determining the fair cash value of properties in their municipalities. Mass appraisal is the process of valuing a group of properties as of a given date, using common data, employing standardized methods and conducting statistical tests to ensure uniformity and equity in the valuations.
The Assessors of each community are responsible for developing a program to accomplish a fair cash valuation of all property within the community. A continuing program of equalization must be developed in order to maintain fair cash values and to meet the triennial certification requirement established by law.
Data Collection/Analysis
Important components of a continuing equalization program include a periodic (cyclical) inspection of all properties; the law requires a minimum of once within every ten year cycle but more frequent inspection, once every three to four years, ensures the accuracy of the assessors database.
Assessors must perform an annual inspection of all properties with open building permits. These annual inspections guarantee all current building and remodeling as well as demolitions are reflected in the valuation of the property for the upcoming tax year. Properties are also inspected at the time of a sale to ensure that the information on the property record card accurately reflects the condition of the property and its improvements at the time of the sale.
The accuracy of the assessors’ records is critical if the sales-ratio studies are to accurately reflect the market. A very simplistic example of the negative affect not performing inspections can have on the valuations is, for instance, the assessors office does not perform building permit, cyclical or time of sale inspections and the assessors’ data base becomes less than accurate. Further assume that in a given year there are thirty sales of ranches; with the majority of the sale prices being $15,000 to $20,000 higher than the current assessed value. A sales analysis or sales ratio study performed on this inaccurate data indicates that ranches are being under assessed and the value of all ranches must be raised for the next billing cycle. If however, the scenario is that the assessors’ staff
performs its duties and all property owners allow the necessary inspections. The building permit inspections add porches, decks and garages to several of the sale properties and the cyclical and time of sale inspections turn up several more with finished basements. The properties that had the inspections now have assessed values that are appropriately higher and much more in line with the sale price. The sales analysis performed on accurate data indicates that the sale price and assessed value are similar and there is no value increase to ranches for the next billing cycle.
Values
The job of the Assessor is to determine the market value of every parcel of property in a city or town as of each January 1 prior to the beginning of the fiscal year. In practice, there are three universally accepted approaches to value: market, income and cost. Market Approach uses market sales of similar properties which sold in the year or two years (depending on the number of sales) prior to January 1. These sales are analyzed using median and coefficient of dispersion (COD) within stratifications based on state class code, sales price quartile, building style, neighborhood, age, etc.. When there are many sales, the market approach is the most accurate and dependable tool in the determination of value. Most residential property is valued by the market approach.
The income approach is most applicable to real estate that is normally bought and sold on the basis of its income-producing capabilities, such as retail stores, office buildings, apartment buildings and industrial properties. The approach requires significant data such as rents, occupancy rates, operating expenses, and investor requirements. The approach is most useful in valuing investment property where sufficient market sales are not available. The income approach considers the income stream that a property is likely to produce for an investor over a finite period of time. The process of capitalization converts the future benefits of ownership into present worth or market value. The elements of capitalization are income (I), rate (R) and value (V). The income approach formula is expressed as: Value equals Income divided by Rate (V
= I/R).
The cost approach involves an estimate of the current reproduction or replacement cost of the building, deducting an estimate of depreciation (or loss of value from any cause) and then adding an estimated value of land. Reproduction cost is the amount of money necessary to erect a new structure that is an exact replica of the existing building. It is appropriate in the case of recent construction. Replacement cost is the expenditure necessary to build a new building equal in utility to the original and able to serve as a substitute in function. It is more useful with older buildings. The cost approach is most applicable to special-purpose properties that are not readily sold or rented.
The final step in the appraisal process is to analyze the value indications from the cost, market and income approaches and determine a single market value for the parcel of property.
Certification of Values
The Commissioner of Revenue determines triennially whether assessed values in a city or town represent full and fair cash valuation for each class of real and personal property. Cities and towns cannot implement the levy allocation provisions of the Classification Act unless the Commissioner has certified that local assessments reflect full and fair cash value. When the assessments are completed, the assessor submits a request for certification review to the
DOR. The Bureau of Local Assessment within the DOR conducts a statistical analysis and performs a preliminary field review. If all of the standards have been met, the Bureau notifies the city or town of preliminary certification. After receiving preliminary certification, the assessors implement a program of public disclosure intended to provide taxpayers an opportunity to inquire about proposed new assessments. Once the community receives certification from the Bureau of Local Assessment that the proposed values represent full and fair cash value, the city or town starts the classification and tax rate setting processes.
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